As you prepare to file your 2017 tax returns, you should know how expense reimbursements can factor into your income. Obviously if your company has reimbursed you for expenses, you cannot write these expenses off. However, these reimbursements can still factor into your returns. Understanding the possibilities and how they fit into your expense reports can help you properly file your taxes.
Employer Plans Have Different Impacts On Your Tax Returns
The type of plan your employer uses when reimbursing your expense reports determines if you will need to report expense reimbursements as income.
If your employer uses an accountable plan, the United States Internal Revenue Service does not consider reimbursements, allowances, or advances as income. A plan is considered accountable under three conditions.
- The reimbursement is for deductible expenses you paid while working as an employee.
- You must provide documentation to your employer of the expenses within a reasonable period of time. You must also return any excessive reimbursement.
- Your employer does not report any expense payments as income on your W-2.
If your employer uses a nonaccountable plan, the IRS considers reimbursements, allowances, or advances as income. In this case, your employer would report your expense payments as income on your W-2. You can deduct your expenses from your taxes by using a Form 2106 or Form 2106-EZ.
What If My Employer Didn’t Reimburse Me For Expenses?
If you filed an expense report and your employer did not fully reimburse you for costs that you paid out of pocket, you are permitted to deduct the unreimbursed expense from your tax returns. It is worth stressing the importance of keeping track of your reimbursed v. unreimbursed expenses, as unreimbursed expenses can save you money on your tax return at the end of the year. Examples can include dues and certification expenses.
What If I Don’t Work For An Employer?
If you are self-employed, expense payments must be reported as income on your tax return. If you earn more than $600 from a company, you should be issued an IRS Form 1099. This document would indicate all payments and reimbursements you received from the company. You can report any work-related expenses as a tax deduction using a Schedule C.
Be Diligent With Your Expense Reports And Be Prepared Come Tax Season
Knowing your employer’s plan in regards to your reimbursements will put you in a great position when it comes time to file your tax returns this year. Keep track of your expenses, and don’t lose a single penny that you are entitled to!